I am in my early 50’s with around $200k in super. Can I draw my superannuation to invest in property if I set up and buy in the name of a SMSF? What does this entail and are there any tax benefits to having the property in the name of a super fund?
Greg in Blackwood, SA
Top answer provided by:
Yes, if you have set up a complying Self-Managed Super Fund you are able to roll your benefits over and utilise them to purchase direct property. You do not draw the funds out of the Superannuation environment, as there would be issues with meeting a condition of release and potential issues with contribution limits upon adding your funds back into the Superannuation environment, so you simply roll them over to your SMSF bank account once your Self-Managed Super fund has been established with a qualified professional.
Note that trustees can run into issues with diversification when they hold direct property. Trustees are required to have an investment strategy document and to adequately diversify, and this can pose an issue if the purchase price of a property is a significant percentage of the total Superannuation balance. Simply the fact that you ‘cannot sell a brick’ also means that once you are in Pension phase and are drawing on your assets, liquidity can become an issue that should be considered.
If the cost of the property is greater than the sum you have in Super, there are limited recourse borrowing arrangements that are allowed. This is a complicated area and a specialist would be required if proceeding down this route.
Please note that assets in a Self-Managed Super fund must generally be at arm’s length and cannot be purchased from a related party. You are not able to live in the property or have it as a holiday home that you visit even once a year or have your family members visit. Nor can you ever sell it to yourself or purchase one from yourself.
There certainly are tax benefits of holding any assets in the Superannuation environment. These include the fact that earnings are taxed a maximum of 15%, or 0% once retired and over the age of 60 in Pension phase. Also, the contributions that we can make to Superannuation during our working years can provide us with taxation benefits which mean it is more tax advantageous than purchasing an asset with after-tax dollars. And if you do happen to choose a property that appreciates well over the years and you wish to sell it, capital gains tax within the Superannuation environment is only a maximum of 10% if the asset has been held for over a year.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.